The economic recovery that is America

Averaged across all occupations, we estimate that real median wages declined by 2.8 percent from 2009 to 2012. This is a striking decline, given that productivity increased by 4.5 percent over this same time period….Moreover, as shown in Figure 1, lower-wage and mid-wage occupations saw significantly bigger declines in their real wages than did higher-wage occupations. Occupations in the top two quintiles saw their median wages decline by less than 2 percent on average (and nearly a third of those occupations actually saw real wage growth). By contrast, occupations in the bottom three quintiles saw their median wages decline by 3 percent or more.

This is pretty close to my position, at least to the extent that I have a position. But I’m not too clear on why we should be happy to have the wages of high-skilled people beaten down next. My suggested modification is that we sell immigration slots rather than give them away. That accomplishes the goal of having the immigration be high skill (and therefore low crime, low welfare) while compensating the citizens for whatever makes them feel bad about immigration, whether it’s real or imagined.

I also think this works better from a Rawlsian ethics perspective. If you don’t know which side of the transaction you’re going to wind up on, you want the price to be fair, not zero.

Chris SJuly 10, 2013 at 3:28 pm

+10

8July 10, 2013 at 3:33 pm

In other words, worry more about how to make top-notch hydraulics than how to prop up janitor wages

That’s the solution for the top. The solution for the bottom who are facing global wage pressures is to insulate them with domestic jobs. The way to help them is to restrict immigration. America can lift McDonald’s and janitor wages by ending low skill immigration and deporting illegal immigrants.

mikeJuly 10, 2013 at 3:34 pm

Most people don’t know this, but our immigration system actually generally does require immigrants to bring some kind of useful quality, although the bar is still probably too low. (I know that chain immigration is the majority of legal immigration, but in theory at least the original immigrant was supposed to bring something useful)

The problem is that we don’t actually enforce our system, and the vast majority of our immigrants and their offspring have been from people our system was designed to exclude.

RahulJuly 10, 2013 at 4:24 pm

“The problem is that we don’t actually enforce our system, and the vast majority of our immigrants and their offspring have been from people our system was designed to exclude.”

Good point. US immigration, in theory, doesn’t allow someone to say “Hey I’m going to work as a $10-an-hour janitor. Let me in” Ones that do get in are through sad loopholes.

OTOH, immigration ought to allow someone to say “Hey I have an Engineering PhD, a 100,000 Euro job and a 2 licensed Robotics patents” and then get permanent residency pronto. Unfortunately it doesn’t.

Ergo, on the low-skill side we need enforcement reform. On the high-skill side we need serious law-reform.

Cliff ArroyoJuly 10, 2013 at 5:18 pm

The problem is that high-skilled immigration doens’t much help the countries that the highly skilled are coming from….. creating a greater need for TA DA! Low skilled emigration.

Blunt InstrumentJuly 11, 2013 at 9:29 am

“…creating a greater need for TA DA! Low skilled emigration.”

Actually, most developed countries also have a greater need for low skilled emigration. America was built on low skilled workers emigrating from Europe prior to the imposition of ‘social safety nets’. These ‘nets’ have functioned as a ‘check valve’ preventing the outflow of low skilled workers to countries where they could find work. Of course, that also assumes that the other countries would have similar laws, public services, etc. as the country they are emigrating from. Unfortunately, these social costs will keep the flow unidirectional for the foreseeable future.

Chris SJuly 10, 2013 at 3:30 pm

Hi mike! Glad to see you’re still with us.

I am not sure I heard a causal relationship in there, did I miss it?

8July 10, 2013 at 3:40 pm

The U.S. simultaneously opened up the American market to foreign competition and then flooded the domestic market with labor. Who does it benefit to drive wages to the global minimum while driving up the returns to capital? Arab oil sheikhs?

“What people should worry more is how to compete against foreign competitive threats”

Quite right. Obviously, this is not the time to worry about domestic competitive threats to the wages of less-skilled American citizens. I mean, the House is only debating the most significant immigration legislation since 1986, so let’s not think about immigration right now. Let’s think about other stuff, any other stuff, until Schumer-Rubio gets signed.

Peter SchaefferJuly 10, 2013 at 7:33 pm

Rahul,

:”I suspect the recent trends in US-wages have less to do with internal competition than external competition”

I could point out that the advocates of free trade invariably claim that trade isn’t materially reducing U.S. wages… I could also point out that the usual homilies in favor of free trade, suggest that displaced American workers can/should move to higher value-added occupations (just as low-skill immigrants supposedly ‘free up’ Americans to move to better jobs).

However, since those views (on trade) don’t seem valid to me, let’s use a different argument. Say trade is reducing the demand for low-skill (and median skill+) labor. Why exactly would public policy work to increase the supply of something we already too much of? A commodity whose price is falling? A lot over a long period of time?

In other comment, I pointed out that low-skill immigrants can’t possibly support themselves and their families (health care averages $12 per hour for the entire economy). Why would America encourage immigrants who will make the natives poorer to enter our economy?

RahulJuly 11, 2013 at 7:13 am

>>>Why exactly would public policy work to increase the supply of something we already too much of? <<<

Do we have too much of the high-skill labor pool? Your original post seemed against all immigration, without any distinction on skill.

I'm not saying flood in immigrant janitors and dishwashers: but unless we streamline high-skill immigration, we have a problem.

MarieJuly 10, 2013 at 11:08 pm

I assume that if we have a lot more productive working hydraulics engineers we’ll also have a lot more, and better paid, janitors since those engineers will need someone to empty the trash for them.

Human beings of every class are a resource in a well ordered economy. Of course, ours probably isn’t one.

CarelessJuly 12, 2013 at 3:16 pm

And now that your assumptions run into reality and you realize that wages for janitors are collapsing despite ever more engineers, do you change your thinking?

MarieJuly 12, 2013 at 5:29 pm

Oh, I’m a horrible egotist and know-it-all, I don’t change it one bit. I put it on the economy not being well ordered and the engineers not being productive.

Cheating, I know.

xJuly 10, 2013 at 7:38 pm

Compared to developing countries, they are indeed way too high.

It makes no sense for someone in the U.S./Europe to be paid more than someone from a developing country doing the same job.

MarieJuly 10, 2013 at 10:58 pm

You mean eventually, right?

A loaf of white bread averages $3.60 in Norway, $2.20 in the U.S., $1.03 in Greece, 57 cents in Sri Lanka.

A three bedroom central city apartment rents for $4,702 a month in Singapore; $249.88 in Pakistan.

These are numbeo numbers so who knows about specific accuracy, but of course *sudden* wage equity would bring chaos.

RahulJuly 11, 2013 at 6:52 am

Yes, but for most part, the person buying, doesn’t care if it was made by a fellow eating a $7.00 loaf or a $1.00 loaf.

Unless your strategy is to survive catering to domestic markets alone, the wages have to equalize. Or we focus on making sophisticated doohickeys that the $1.00 Sri Lankan hasn’t figured out how to make yet.

MarieJuly 11, 2013 at 8:40 am

No problem with equalization, just wary of any attempt to force it top down. Doubt that’s a threat, anyway.

Peter SchaefferJuly 11, 2013 at 1:10 pm

x,

“It makes no sense for someone in the U.S./Europe to be paid more than someone from a developing country doing the same job”

You are sooo right. We need to start by reducing the wages of academics and journalists to third-world levels. That way we won’t have to put up with Open Borders propaganda ever again.

See what can be accomplished when politicians and media moguls work together!

Hope and Change!

lords of liesJuly 10, 2013 at 2:32 pm

bryan caplan cheered the libertarian leveling from the safety of his tenured bubble.

EffemJuly 10, 2013 at 3:28 pm

And yet corporate profits are at record highs. I always thought the link between lower real wages and employment was: lower real wages leads to higher profit potential which leads to greater desire to hire. Clearly this is broken.

BCJuly 10, 2013 at 10:37 pm

To be fair, unemployment did fall during this period of falling real wages. In fact, suppose one believes that one cause of unemployment during recessions is sticky nominal wages. Suppose the Fed responds to the high unemployment with sufficient monetary stimulus to create sufficient inflation such that real wages fall and suppose unemployment falls. If one objects to the intended results of a policy designed to combat nominal wage stickiness, is one then implicitly arguing that the Fed should have followed a tight money policy to keep real wages and unemployment high?

Well, this most recent decline at the bottom cannot be blamed on migration, despite the appearance of Sailer and the usual anti-immigration gang, because we had net zero immigration from Mexico, which of course calls for a doubling of our border patrol down there to stop this epidemic.

OTOH, probably Mulligan had it right back in 2008. All those people are just getting lazier and lazier.

mikeJuly 10, 2013 at 3:39 pm

“we had net zero immigration from Mexico”

And we know this, because Mexican immigration is famously well-documented.

8July 10, 2013 at 3:44 pm

Credit bubbles help to hide the effects of bad policies.

Jamie_NYCJuly 10, 2013 at 4:55 pm

“this most recent decline at the bottom cannot be blamed on migration” – is your thesis then that if the 11+ million currently demanding amnesty were not here, that would have had no (positive) impact on wages?

Peter SchaefferJuly 10, 2013 at 7:38 pm

BR,

See “Immigrant Gains and Native Losses In the Job Market, 2000 to 2013″ By Steven A. Camarota and Karen Zeigler. Quote

“While jobs are always being created and lost, and the number of workers rises and falls with the economy, a new analysis of government data shows that all of the net gain in employment over the last 13 years has gone to immigrants (legal and illegal). From the first quarter of 2000 to the first quarter of 2013, the number of natives working actually fell by 1.3 million while the overall size of the working-age (16 to 65) native population increased by 16.4 million. Over the same time period, the number of immigrants working (legal and illegal) increased by 5.3 million. In addition to the decline in the number of natives working, there has been a broad decline in the percentage holding a job that began before the 2007 recession. This decline has impacted natives of almost every age, race, gender, and education level. The total number of working-age (16 to 65) natives not working — unemployed or out of the labor force entirely — was nearly 59 million in the first quarter of this year, a figure that has changed little in the last three years and is nearly 18 million larger than in 2000.”

Let’s try that last sentence again.

“The total number of working-age (16 to 65) natives not working — unemployed or out of the labor force entirely — was nearly 59 million in the first quarter of this year, a figure that has changed little in the last three years and is nearly 18 million larger than in 2000.””

byomtovJuly 10, 2013 at 7:51 pm

It would be easier to evaluate that paper if you provided a link to it.

Peter SchaefferJuly 10, 2013 at 8:08 pm

byomtov,

“It would be easier to evaluate that paper if you provided a link to it”

You are completely correct. I generally avoid links because commenting systems assume that links = spam.

BUT since you asked: My opinion, based on no supporting facts, is that illegal immigration is not a major factor in the decline of wages across the board. I also believe that you need to proved that the CBO’s analysis showing net GDP growth with immigration reform in place is wrong and you haven’t done that.

AND I also believe that Congress’s defeat of the DREAM act is cruel, unconscionable, appalling stupid, and, worst of all, a betrayal of what’s best in the American experience.

BUT what do I know,

Bender Bending RodriguezJuly 11, 2013 at 5:25 pm

Right, because Mexico is the only central American country that sends the US their poor, tired, huddled masses.

In the words of Charlie Gibbs: Guatamala? Never heard of it.

collinJuly 10, 2013 at 3:31 pm

Is the story here we popped the labor participation bubble of 1960 – 2008?

Frank SomatraJuly 10, 2013 at 4:02 pm

Does the concept of a bubble make sense over 2.5 generations?

Peter SchaefferJuly 10, 2013 at 7:40 pm

collin,

“Is the story here we popped the labor participation bubble of 1960 – 2008?”

What bubble? Female LFP rose faster than male LFP declined from 1960 to 2000. Both have plunged since then.

Unless you think women are going to massively exit the labor force, it wasn’t a bubble.

Chris SJuly 10, 2013 at 3:31 pm

The return to skill has increased, at least those skills in demand in the 2010s.

This measure doesn’t include benefits. So, this is exactly the result you would expect in a low inflation environment.
If someone making $50,000 and someone making $200,000 each see a 10% increase in nominal wages, including benefits, and there is a $5,000 increase in health insurance costs, then the base wage for the lower income will stay at $50,000 and the higher income will go to $215,000. It looks like a 3% differential between the two, whether measured in real or nominal terms, but it’s really just a product of not measuring all of the compensation.

MarieJuly 11, 2013 at 10:55 am

But $50 is the national average, right? When you go below $50, you start into territory where there are no benefits attached to employment. How does that skew things?

It’s worth keeping in mind that job change is “one of the main avenues for wage growth” (see here, and both job and worker flows are very low in the post-Great Recession period. So some of the bad wage growth may be explained by the broader decline in churning.

(Of course I think real wages should be higher, and stagnation is terrible. But I don’t like comparisons with productivity growth).

Scott McGuireJuly 10, 2013 at 5:40 pm

Is there something a little bit wrong with comparing the directions of _median_ wages and (what I assume to be) _average_ productivity?

BCJuly 10, 2013 at 10:27 pm

Maybe. There is definitely something wrong with comparing changes in wages across income groups without comparing changes in productivity across income groups, as well as comparing *changes* in wage per productive output unit without comparing the initial wage per productive output unit.

Brian DonohueJuly 11, 2013 at 8:27 am

Nope. No one knows where productivity increases come from- I think they come from outer space.

Anyhoo, it’s our duty to parcel out the fruits of productively increases evenly. Because fairness.

allanJuly 10, 2013 at 6:12 pm

Lower wages and higher productivity. Obviously this cannot be true because in the world of the marginalists wages always equal the marginal product of the worker. I guess somebody forgot to check for the Reinhardt-Rogoff marginal error measurement index (RR-MEMI.)

AlanJuly 10, 2013 at 8:58 pm

The people who hired the Republicans have achieved one of their goals, without occupying the White House.

mikeJuly 10, 2013 at 11:52 pm

Didn’t Democrats have control of all the legislative power including a Senate supermajority through 2010? If they had the answers, couldn’t they have done something about it then? Not to mention the permanent government bureaucracy – agencies, etc, who in practice have a lot of policymaking power, are overwhelmingly Democrat? I mean, even in your mind isn’t this getting a little Emmanuel Goldstein-ish, a little “capitalist wreckers”-ish, to keep blaming all the problems on a nebulous group with vanishingly little power?

Al Franken was not sworn in until July of 2009. Between that contested election and the last days of Kennedy and Byrd, during which both were gravely ill, there wasn’t a de facto supermajority.

ACJuly 10, 2013 at 10:35 pm

The decline in wages for most working Americans is not causal wrt immigration, illegal immigrants or technology. It is a direct result of the accelerating dominance of the mis-ruling oligarchy that drives our society. Wages are an unnecessary expense to the plutocracy, as are American jobs in general, and both are/will being eliminated as fast as maintained profits allow. Prior to the mid 1970’s the American economic system could not afford to “recklessly” discard the American worker without having unwanted repercussions. Now things are different as the world has changed. The corporate state is free to persue it’s agenda without regard to any consequences for American society nor populace. This is where unfettered unregulated crony/vulture/vampire capitalism inevitably leads. Control of society has been wholly taken over by the corporations. The American political system, never a “democracy”, is now functionally equivalent to the USSR of 1970. And we are racing downhill. 20 years from now this time will be regarded as the golden age.

MarieJuly 10, 2013 at 11:03 pm

I reference Belloc, so take my agreement for what it’s worth, but his predictions that if you concentrate the economy in a few monopoly hands so that you only have, say, 5,000 people who really own things in the country, it’s supported by those who want a communist state since 5,000 are a lot easier to put up against the wall and confiscate their assets than 5 million.

ACJuly 11, 2013 at 12:52 am

Of course. The whole thing is a communist plot. Makes sense to me. Btw – when did you stop beating your wife?

MarieJuly 11, 2013 at 8:47 am

The idea is that monopolistic capitalism and communism (or fascism, socialism, etc. — state control of means of production) are two sides of the same coin. The point of both is concentration of power and wealth into the hands of a few. In the end, the few don’t care what system concentrates the wealth into their hands. But if there are competing groups of plutocrats, and a culture that inclines to capitalism, the smart thing to do is to let the monopolists concentrate the power and wealth for you before you take over.

Not that this fits the pattern of how home financing (FM and SM) or GM or the health care financing (insurance) system or anything like that has gone in recent decades. Nutty theory. Nothing to see here. Free markets are for chumps. Or are great and we’ve got them in full already. Whatever.

Brian DonohueJuly 11, 2013 at 8:37 am

In unrelated news, the economy has added 9.4 million jobs since the January 2010 trough. All of these (and more) have come in the private sector. Government employment has fallen by half a million since then. Hallelujah!

It was always gonna be a long, tough slog. Obama and Boehner. Little by little.

JohnJuly 11, 2013 at 2:53 am

The free market will fix it.

Brian DonohueJuly 11, 2013 at 8:30 am

I can’t wait for tomorrow’s post about the jobs shortage.

The economics profession needs to stand four-square behind a program of more jobs AND higher pay for everyone!

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